The official "blog of bonanza" for Alfidi Capital. The CEO, Anthony J. Alfidi, publishes periodic commentary on anything and everything related to finance. This blog does NOT give personal financial advice or offer any capital market services. This blog DOES tell the truth about business.

Wednesday, September 30, 2009

The Chicago Purchasing Managers Index fell to 46.1 in September rather than rising to the 52 that economists expected. The index, considered a precursor to the national Institute for Supply Management index to be released on Thursday, pointed to a Midwestern manufacturing industry than is weaker than had been expected.

CIT Group Inc. shares plunged Wednesday as the commercial lender is reportedly trying to craft an exchange that would cut its debt and offer bondholders an equity stake in the company in a bid to avoid bankruptcy.

Weaker than expected manufacturers . . . and a weakening lender to those same types of manufacturers. Come on, folks, admit that we're moving through the eye of this economic hurricane and back into the gale force winds of a renewed credit crunch.

Friday, September 25, 2009

Demand for U.S. durable goods unexpectedly fell in August, signaling companies are planning to curb spending on concern gains in sales will not be sustained.

The lasting damage of programs like Cash for Clunkers is to fool pundits and consumers into thinking we can borrow our way out of an insolvency-induced contraction. Purchasing managers and operations managers should know better, hence their realism in trimming orders.

Wednesday, September 23, 2009

“There’s a little bit of a wall of worry right now, but the market just feels like it wants to go up,” said Michael Mullaney, a Boston-based fund manager at Fiduciary Trust Co., which oversees $9 billion. “There’s going to be a very strong near-term economic rebound greater than expectations. I think we’ll end the year higher.”

The first part of that quote is an understatement. Just a little wall, you think? The second part of the quote makes me sad. Wall Streeters are going to stake a whole bunch of other people's money on the hope for a continued rebound through the Christmas shopping season. They're not alone in their misplaced optimism for a fast recovery; the Fed is planting the same meme in the media:

Federal Reserve officials may signal that the U.S. economy has started to recover while maintaining their pledge to keep the benchmark interest rate near a record low for an “extended period.”

Actions always speak louder than words. The Fed is keeping interest rates low because the economy is not at all out of danger. I'm not shorting anymore because all this stimulus action is pushing stocks into blowoff top territory. I may have been a few weeks premature by calling a market top recently but I'm convinced I'll be vindicated soon enough.

Monday, September 21, 2009

I'm not doing uncovered shorts anymore. That was too risky as my short calls on some widely traded ETFs went against me in a big way this month. Furthermore, the risk of not being able to access my account in a timely manner to cover those shorts is a real risk management threat that I realize I must now mitigate. I would like to take positions in the major indexes at some point, which is why I've written a couple of OTM puts (covered by cash) on SPY that expire before the end of the year. The worst that could happen is that I'll have to go long a small amount of SPY at a discount of more than 20% from last Friday's closing price. I am still quite bearish on the major indexes, but I am willing to risk owning a little SPY for many years as long as I get it at a big haircut.

I have renewed my covered calls on all of my holdings of IAU and FXI. I also sold a few calls on GDX because I am willing to risk some but not all of those holdings getting called away. If there is one gold security I wish to retain through this long economic crisis, it the one that represents established gold miners (GDX) rather than gold contracts (IAU) which may turn out to be merely paper.

I am not selling any puts under VWO, EFA, or IWM. I'll be patient and wait for large declines in each of those.

Saturday, September 19, 2009

I unwound my expiring uncovered calls on Sept. 17 when I bought them to close . . . at big losses. Although I still have decent unrealized gains from my long equity holdings, this was a disastrous month compared to the rest of 2009.

This month’s realized loss has wiped out all of my realized gains for this year, and then some. That sucks. If I were a hedge fund manager I’d probably be fired. That’s the great thing about working for myself – no one can fire me based on poor short term performance. I truly believe it will be at least a decade for my investment philosophy to show measurable results. That’s fine with me, because I don’t have to prove anything to anyone.

I’ve said all along that I’m a long term investor, and like Warren Buffett I’d have a hard time getting hired or keeping a job today with money management firms that measure themselves by the month rather than by the decade. Lately I’ve been too focused on the short term myself, taking short-term profits from uncovered calls while broad indexes have been climbing a wall of worry. I have also underestimated the stupidity of professional investment managers who are all too eager to bid into an overvalued market in their never-ending quest to beat the other guy’s alpha.

I’ll remind myself of Uncle Warren’s wisdom: Be fearful when others are greedy. Investors jumping back into the market are getting greedy, so I need to be more fearful. I’ll lay off the uncovered ETF calls for a while and instead focus on finding some long-term value plays for my focus portfolio. Those are things I can measure with much more mathematical precision than the broad market sentiment that drives index prices.

Friday, September 18, 2009

The Federal Housing Administration said Friday that its financial cushion will sink below mandatory levels for the first time in its history, but officials insisted the agency won't need to be rescued.

Russia's Prime Minister Vladimir Putin on Friday said other currencies besides the dollar should be used as global reserves to reduce the risks posed by swelling U.S. debt.

Putin, who spoke at an international investment forum in the Black Sea resort of Sochi, chided the United States for "an uncontrolled issue of dollars" and said the American currency's dominance had been "one of the triggers" of the global crisis.

The nightmare for the U.S. economy should come around the middle of the Christmas shopping season as retailers and their landlords start to panic. I am preparing to raise cash for the next couple of months in anticipation of some major bargains in the stock market.

I once respected Ken Fisher. I thought he had some interesting things to say about arbitrage pricing when he spoke at the San Francisco Money Show in 2002. I lost all respect for him when he spoke there again in 2006 after he claimed that American's home equity was a good substitute for savings in the bank.

The U.S. has too little debt, not too much, Fisher says. The U.S.'s return on assets is high and interest rates are low, so our borrowing capacity is much higher than our current debt levels.

Also, Fisher says, you have to look at the U.S. in the context of the world, because the U.S. is only 25% of world GDP. The world is way under-leveraged, so one country's particular debt-to-GDP ratio doesn't matter.

Some financial icons manage to outlive their reputations for brilliance. Warren Buffett and Alan Greenspan come to mind. Now it's Ken Fisher's turn to be ignored. Apparently he hasn't watched I.O.U.S.A. or visited Perot Charts. Maybe he's still stuck in the 1980s when his acumen as a portfolio manager and analyst was at its peak.

Folks, please don't listen to Ken Fisher if you want to survive the next few years of malaise. Just stay out of debt for the foreseeable future. That's my own plan.

Warren Buffett, the billionaire investor who last year called the financial crisis an “economic Pearl Harbor,” said the U.S. economy has “hit a plateau at bottom.”

The Sage of Omaha is getting slow in his old age, as evidenced by the languishing performance of his railroad stocks and ConocoPhillips. The railroads he owns violate his preference for avoiding investments in companies with small debt loads.

Come on, Warren. You're smart enough to check rail car loading data. Have your staff look up container traffic from Asian ports and make note of the decline from last year. The Christmas shopping season will be a disaster for retailers and we'll be right back into a credit crunch for a not-so-happy new year.

Warren Buffett has been buying stocks, and I've been shorting the U.S. indexes. I've made a little money this year and Warren has lost a lot. I've also missed the big S&P rally because I'm convinced it's a prelude to a very large decline.

Commercial-property sales in the U.S. this year are forecast to fall to the lowest in almost two decades as the industry endures its worst slump since the savings and loan crisis of the early 1990s.

Okay, this isn't much of a surprise, although CRE industry veterans quoted in the article are aghast that they've never seen a buyer's drought of this magnitude in their careers. The lesson for investors is farther down:

The default rate on commercial mortgages held by U.S. banks more than doubled in the second quarter to 2.88 percent, according to New York-based Real Estate Econometrics. It may reach 4.1 percent by year end, the highest since 1993.

That may mean more pain for banks that hold the mortgages and signal that this year’s gain in real estate investment shares may be overdone.

Banks are nowhere near healthy, depsite all of the happy talk you hear on CNBC. Bankers are happily paying themselves huge bonuses again, and I suspect they're doing so out of fear that they may never see such income levels again if the banking system heads over a cliff soon. Three more snips from the article will show us where we're headed:

“We’re not forcing the banks to disgorge” distressed properties, said Susan Wachter, professor of real estate at the University of Pennsylvania’s Wharton School in Philadelphia. “It’s a different crisis, a far worse crisis.”

FDIC regulators who should know better are not forcing banks to write off bad loans and seize properties, so technically insolvent banks continue to function.

Maturing commercial property loans are high on the “worry list” of San Francisco Federal Reserve President Janet Yellen, she said in a July 28 speech to the Oregon Bankers Association.

Leaders at the Fed know banks' true conditions and are maintaining a ZIRP funds target to forestall the second phase of our systemic crisis.

The entire real estate dynamic has shifted, said Frank Liantonio, executive vice president of Cushman’s capital markets group. Liantonio, 60, with a career that goes back to the early 1970s, said he’s been through six down cycles from the mid-1970s to the dot-com bust of the early 2000s. This is the worst, he said.

“Property is no longer controlled by the owner,” he said. “It’s controlled by the lender, and the lender in most instances doesn’t have the ability to take the charge to earnings and sell the property. That’s one reason why you’re not seeing any transactions.”

I bolded part of that final quote to show how the continuing insolvency of our banking system keeps the real estate market frozen. This is why REITs and ETFS like $IYR have rebounded recently. Investors are attracted to the false hope that commercial real estate will remain attractive because of the inability of insolvent banks to foreclose on defaulted loans.

Note that IYR is up almost 100% and XLF is up almost 140% from their March lows. These price levels are unsustainable given the slow-motion crash in CRE disguised with the full complicity of bank regulators.

Disclosure: Anthony J. Alfidi has no position in XLF or IYR at this time.

Thursday, September 10, 2009

U.S. Treasury Secretary Timothy Geithner said the government is moving to withdraw some of its support for financial markets and cautioned that the recovery will have “more than the usual ups and downs.”
(snip)

Other, unused programs will be allowed to expire, including a program guaranteeing money-market mutual funds and the Capital Assistance Program, which was established earlier this year to provide extra money to banks that needed it and couldn’t access private markets.

Withdrawing "other, unused programs" doesn't count for jack squat when the Treasury intends to keep buying banks' toxic assets. Furthermore, hopes for repayment of another $50B in TARP money are blithely ignorant of the stats on souring credit card loans and commercial real estate mortgages. Treasury's pronouncements depend heavily on the business media's gullibility and inability to perform real analysis.

Time will tell whether Treasury is serious about kicking the props out from under the financial markets. My bet is that they're not serious, which is why I'm hanging onto the gold hedges (IAU and GDX) in my portfolio.

Wealthy individuals’ Chapter 11 bankruptcy filings jumped 73 percent in the second quarter from a year earlier, according to the National Bankruptcy Research Center, a research firm in Burlingame, California.(snip)

Falling U.S. home prices leave them unable to refinance or sell properties when they drop below the value of the mortgage, said Chicago bankruptcy attorney Joseph Baldi.(snip)

“Real-estate is an incredible thing on the downside,” said Jason Green, a bankruptcy attorney based in Washington. “Equities can only go to zero. Property can go well below zero,” because of ongoing expenses such as property taxes, insurance and maintenance on primary residences, vacation homes and investment properties.

The nation's real estate explosion is not limited to subprime borrowers who bit off more McMansion than they could chew. It now touches the real mansions of bona fide multimillionaires who never thought they'd have to trade down. I'm guessing that these distressed properties will start to hurt the loan books of luxury lenders like First Republic pretty soon . . . which in that case means more trouble for Bank of America and Merrill Lynch (First Republic's parent).

I don't engage in schadenfreude because I wouldn't want it done to me. Watching people get poorer is no fun. That's why this is a reminder for me to live within my means and stay out of debt. My net worth at this moment is somewhat higher than it was at the beginning of this year, thanks to my frugality, investing discipline, avoidance of debt, and some really good luck. That luck is sometimes what separates a downwardly-mobile wealthy dude from an upwardly-mobile striver like yours truly.

On the other hand, some foreclosed mansions will soon be on the market. There's always hope that I could pick up something nice in San Francisco on the cheap.

Tuesday, September 08, 2009

The gold contract for December delivery traded up $6.50, or 0.7 percent, at $1,003.20 per troy ounce on the New York Mercantile Exchange. It had gone as high as $1,009.70; that is the highest since it hit a record of $1,033.90 on March 17 last year.

Go gold! My faithful readers (all three of them) know that I am long IAU and GDX. I wrote covered calls on GDX (plus a few extra uncovered ones) and some covered calls on IAU to generate a little bit of yield. I figured why not, as gold had stayed in the $900-980 range for several months. If my holdings are called away, I'll buy them back in a wash sale. I'm just glad to see my patience with gold finally pay off. :-)

Friday, September 04, 2009

The pace of U.S. job losses slowed in August while the unemployment rate reached a 26-year high, signaling the recovery from recession will be slow to develop.

We're more than two-thirds of the way through the third quarter. Back to school spending has been a disappointment. The recovery that optimists have forecast for the second half of 2009 has a ton of catching up to do, so we'll have to see a blowout Christmas shopping season. That will be tough to deliver with homeowners defaulting on their prime mortgages.

Tuesday, September 01, 2009

China’s manufacturing expanded at the fastest pace in 16 months in August, driven by record lending in the first half of the year, two surveys showed.
(snip)

Gains in output, orders and jobs added to evidence that Premier Wen Jiabao can meet his 8 percent growth target for the year as a stimulus package counters
falling exports.

That second snippet goes to show that Chinese data is just as subject to puffery and political manipulation as U.S. data. This unfortunate tendency is something that investors all over the world will just have to accept. Chinese investors may be nervous but I'm not. Any bursting of this bubble makes it cheaper for me to add to my FXI holdings, on the premise that China's pursuit of natural resources lays a foundation for long-term growth.

Crowdfunding Stuff

Subscribe To

Google+ Followers

Legalistic Disclaimerism

Alfidi Capital is a private financial research firm.Alfidi Capital is not affiliated with any broker-dealer and does not manage money for clients.All information mentioned in this blog is derived from public sources.Alfidi Capital makes no representation as to the accuracy or completeness of this information.Alfidi Capital and its owner, Anthony J. Alfidi, may from time to time hold long or short positions (including options, warrants, rights, and other derivatives) in the securities mentioned in this blog.This blog is provided for informational, educational, and entertainment purposes only and does not constitute a recommendation or solicitation to execute a transaction in any investment product.Investors should consult with a properly licensed and registered investment professional before making any investment decision.The bottom line:Enjoy reading this blog, but the risk you take with investing is entirely your own.